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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day and welcome to the Godrej Properties Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Anoop Poojari of CDR India. Thank you and over to you, Mr. Poojari.
Thank you. Good afternoon, everyone, and thank you for joining us on Godrej Properties Q3 FY 2018 Results Conference Call. We have with us Mr. Pirojsha Godrej, Executive Chairman; Mr. Mohit Malhotra, Managing Director, and CEO; and Mr. Rajendra Khetawat, CFO of the company. We will begin the call with opening remarks from the management, following which we'll have the forum opened for an interactive question-and-answer session.Before we start this call, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the conference call invite e-mail to you earlier.I would now like to invite Mr. Pirojsha Godrej to make his opening remarks.
Good afternoon, everyone. Thanks for joining us for our third quarter financial year 2018 conference call. I'll begin by discussing the highlights of the quarter and we then look forward to taking your questions and suggestions.I'm happy to note that we registered another strong operational quarter. The total sales for the quarter stood at INR 1,220 crore, which represents a year-on-year growth of 76% and ensured a third consecutive quarter with sales in excess of INR 1,200 crore. We had strong launches in Noida, Mumbai, and Bangalore and were able to combine that with strong sustenance sales across our existing project portfolio.We're especially happy to see GPL's continuing momentum in the NCR market, which has been weak for the last several years. After we've done well in Gurgaon, we successfully entered the Noida market last year, and following in the footsteps of Godrej Golf Links in Greater Noida, we launched Godrej Nest, our second project in Noida last quarter, and we witnessed sales of well over 200 apartments with a booking value of nearly INR 200 crore within the launch quarter.In the first 3 quarters of financial year 2018, our cumulative sales in the Noida market has crossed 1 million square feet with a booking value in excess of INR 600 crores. We also witnessed good traction in the sales launches of Godrej Platinum in Mumbai and Godrej Eternity in Bangalore with sales of INR 100 crore and INR 83 crore, respectively.In addition to this, our sustenance sales witnessed strong traction and we sold 750,000 square feet with a booking value of INR 801 crore from existing inventory. The value of residential sales has been higher in the 9 months of this financial year as compared to any other period in the company's history. The total value of bookings for the 9 months stood at INR 4,029 crore, which represents a 140% year-on-year increase. As we commence the final quarter of the financial year, we're set to achieve our best-ever year in terms of booking value.On the commercial sales front, Godrej BKC saw sales of 124,000 square feet with a booking value of INR 425 crores during the quarter. For the 9 months, we have now sold close to 200,000 square feet at Godrej BKC for a value of nearly INR 700 crores, and we now have only about 51,000 square feet of remaining inventory in the project. We have still to receive well over INR 500 crore of cash inflow from these recently completed sales and we do believe this cash flow will further strengthen our balance sheet and allow us to continue to invest for our growth. We also remain strongly focused on monetizing the balance inventory in our other 2 commercial projects at Chandigarh and Kolkata, though the market conditions in these 2 cities haven't been very conducive and our results there haven't been as per our expectation.After adding 8 new projects in the first half of financial year 2018, we've added 3 new projects with saleable area of over 5 million square feet in January 2018. The first project is located in Electronic City in Bangalore and has a development potential of 1.4 million square feet with an option to further increase it to 2 million square feet. The second project is located at Devanahalli in Bangalore and will be GPL's first plotted development project. Both these projects are under the profit sharing structure.We have further strengthened our NCR portfolio by signing a development management agreement for our third project in Noida, which has a development potential of 1.7 million square feet. We hope to see this build on the success of our earlier 2 launches into the Noida market. We are looking to further expand our footprints in various micro markets across the top 4 cities we are focused on, which are Mumbai, NCR, Bangalore, and Pune. We expect to close financial year 2018 as the best ever year for business development in the company's history.Coming to the financial performance, I'd like to highlight that there was significant contribution from the first phase of The Trees reaching revenue recognition in the third quarter of the previous financial year, which considerably augmented the overall financial performance in the base quarter. Our total income in the third quarter increased by 21% and stood at INR 670 crore. Our adjusted EBITDA decreased by 9% to INR 164 crore and net profit decreased by 66% to INR 26 crore.For the 9 months of financial year '18, our total income has increased by 23% to INR 1,547 crore, adjusted EBITDA has increased by 10% to INR 420 crores and net profit decreased by 35% to INR 93 crores. We do believe that we have the opportunity with performance in the fourth quarter to bring the net profit growth to healthy levels as well. The 2 metrics we're tracking mostly closely, however, to gauge our performance are booking value and operating cash flow. And I am happy to share that for both of these metrics this has been our best-ever financial year. We have generated INR 1,200 crore of operating cash flow so far in financial year 2018, which has allowed us to reduce our debt by INR 435 crore while adding over 23 million square feet to the company's development portfolio.The real estate sector has witnessed some significant developments over the past 1.5 years. Key policy reforms, such as the introduction of GST, the Real Estate (Regulation and Development) Act, incentives under the PMAY scheme and further relaxations in carpet area for affordable housing units have provided a much-needed thrust to India's housing launches. With growing transparency and improving policies, the country's real estate sector is expected to become more institutionalized and we expect 2018 to be a year of continued consolidation and recovery for the property sector.Improved affordability, pent-up demand and improved consumer confidence should further accelerate this recovery. We expect to close the financial year '18 on a strong note as our launch pipeline looks robust and our business momentum is strong. Our performance for the first 9 months of the year underlines the effectiveness of our differentiated business model that is anchored by the strength of the Godrej brand and the ability that gives us to attract partners and customers across the country. Our national presence, strong brand equity and large number of new project leave us in a good position to fully capitalize on this opportunity in the years ahead.On that note, I'll conclude my remarks. We would like to thank you again for joining us on this call. We'll now be happy to discuss any questions, comments or suggestions that you may have.
[Operator Instructions] We have the first question from the line of Puneet Gulati from HSBC.
Congratulations on, once again, good sales. I have just three questions here. Number one, to start with, if you can comment a bit on the low reported profitability part, why would the EBITDA margin be down in this quarter?
I think the reason for that is twofold. I think one, obviously, BKC is at a lower margin than many of the other projects because our reported margin is only our share of the profit, not -- it doesn't include the joint venture partner share. And the second thing is the recognition of DM fees this quarter has been a little bit lower than it's been in recent quarters, but that's -- there will be some quarter-to-quarter volatility.
Okay. So -- but in terms of cash flow, would you be receiving the entire, or would you have to share that with the partners?
No, the cash flow is 100% to us.
Okay. But it's only from accounting perspective you record half the profit and full cost?
Correct.
Okay. Secondly, there hasn't been any deliveries or completions for last 2 quarters. So if you can give some color on what is the pipeline for deliveries over next 4 quarters or a year.
I think the delivery numbers will be quite robust, Puneet. And obviously, quarter-to-quarter, there can be some variations. Particularly, in Q4, Q1, for example, we had large delivery numbers. So obviously, these are pretty big digits. In fact, we usually were delivering about a million square feet in a project of that value, so when it kicks in a quarter, those quarters can be quite high. I think certainly the trajectory we should expect to see is an ever-increasing delivery number and it should quite closely track our sales performance. Certainly, we expect to deliver all our projects on time. So by and large, 3 to 4 years, depending on the project, after we launch the project, we should see deliveries of those projects. I think, if you track our launches over the last 3 or 4 years, I think that should give you a fairly good indication of when deliveries will happen.
No, no, I'm not doubting the delivery, because I notice that every single quarter you've delivered something over last, at least, 9, 10 quarters. So just trying to understand what would be the pipeline in terms of million square feet that you would deliver in this calendar year?
I don't have it offhand. Maybe we can get Rajendra to get you that exact information. The last couple of years, that number has been in the range of 4 million to 6 million square feet.
Okay. Last one is, you acquired 2 new or entered into joint development with 2 projects in Bangalore. In one, you have profit sharing of 21%. Other, you have profit sharing of 50%. How should we think about these joint venture agreements then?
Yes. I think the one with 21%, it's important to note, it is a plotted development. The investment there has been almost nothing. It's a little bit of infrastructure, the clubhouse and so on. So I think that's why clearly the land value there is a vast majority of the value. Perhaps, so I don't think -- and it's a very quick turnaround, kind of higher IRR investments for us, we believe. That's why the absolute profit share is lower there. Now the E-City one is actually a very healthy profit share, as you know, it's 50%, which is at the higher end typically of the profit share.
Yes. So will there be a trend that you would expect this profit share to go up from even these 50% levels, or do you think that is where pretty much most of these new agreements of this nature would settle now?
No. I don't expect it to go up that much, because clearly, if we need to be able -- to be successful in this model over the long term, we need to make sure that we're generating a good return for our partners as well. So if that share of profits to us gets too high, then there is not enough left on the table for our partner. And the other thing I would point out is, there clearly is an opportunity to improve terms a little bit, and I think obviously we will seize that where possible. But we really do believe that the bigger opportunities that the current market is providing us is to dramatically scale up in terms of the number -- the quantity of deals we are doing, the number of new micro markets we are entering. So I think -- we think that doubling, say, the number of projects we do will create a lot more value for the company than improving the terms by 5% or 10%. And really improving the terms beyond that we don't think frankly it is the long-term interest of the company because it won't adequately protect our partners.
Okay. So basically, did I hear it right, you're talking of doubling the business development? So if I look at last 4 quarters, you've kind of added 26.3 million square feet of area. So would you foresee adding 50 million square feet in next 4 quarters?
Oh, you don't get it. That's not exactly what I meant. I think I meant all of the 26 million itself is the doubling of what we have done in the 4 quarters preceding that. So I see there's a lot of opportunity. I don't think area is probably the best way to look at this. Certainly, we would like to continue to look at significantly increasing the value that's accruing to the company from business development. I think we are quite clear that the most important performance metric over these next few quarters, when market conditions are what they are, is business development. So certainly that is the intent and focus. Obviously, where we end up is something that's hard to project at this point.
Okay, okay. So, sorry, last question. So it's been a year to demonetization, a couple of quarters from RERA. Are you seeing significant change in the way joint development agreements are happening and in the way customers are perceiving businesses and new launches?
Puneet, this is Mohit here. So yes, there is changes, which are going to happen in joint development agreements, more related because of the GST impact. So we are studying that. But the one thing which is very noticeable because of these 2 major macro trends is the consolidation which we are observing. The number of deals which are coming on the table, the quality of terms are improving. And you can see even the large developers now wanting to do partnerships. So there is a big trend which is very visible, and most of you speak about it, but very visible on the ground as well. We see some fundamental changes in the industry itself because of -- the revenue share model would get into a question mark because of the GST impact. That's something which we are all studying now.
The next question is from the line of [ Manish Gandhi ], who's an individual investor.
Just first question is on the plotted development. So this is our first foray into this. So is it one-off, or you're planning to do this business in a more -- many other deals? And what are the rationale behind it, because how do you protect our brand in this? So you just sell a plot or you just build also?
I think, clearly we will -- if we find the model working well, I think we'll first start with 2 or 3 projects. But certainly, we do think this is scalable opportunity. And I think the brand protection would come from obviously planning the projects appropriately, having the right design guidelines in place. But yes, so the advantage is that we are not responsible for actually building the homes but responsible for creating the infrastructure, clubhouse and, obviously, with laying out design guidelines and the rest to make sure quality is maintained.
[ Manish ], there is a lot of demand for plotted development. And as Pirojsha said, it's largely to develop a high-quality infrastructure, and then the plots are going to be developed by the individual homemaker. And if you'll see, almost the entire Gurgaon developed by Unitech or DLF was through this kind of development originally -- initially. There is a big market for that, and it's a big opportunity.
No, I completely agree with you, Mohit. Just my worry is that when we do DM or something, so we are always in control of construction. So how we will be able to be in control of construction of individual bungalows or something. And when something goes not right, so how do we protect, because our brand is the asset we're banking on, no?
No. So [ Manish ], here our commitment is that we will make the infrastructure. If you look at -- if I give you a parallel example, say, if you look at Delhi, DDA, or HUDA or any of the government agencies, what they do is they make this plotted -- they make this infrastructure, they build these plots and they sell off those plots. Then in -- our responsibility ends there. So if you buy a plot from us, our responsibility will end from then on and you will build your own house as per your spec, your own contractors, and that has nothing to do with our brand. Our brand is more on a township level, at the infrastructure level.
Okay, got it. My second question is on the Bombay market. So how do you see next 2 years from the supply side and the demand side, and -- because of this dumping ground issue? So we don't know when it will be solved. So how is the supply side looking and how it is affecting us to sign new deals?
Yes, I think, it's -- [ Manish ], a few thoughts on that. I think clearly the dumping ground issue is going to -- is already constraining supply. I think we are quite fortunate that many of our projects were in the [ proper ] pipeline, so things like The Trees, last phases, including commercial, residential are not affected by this. But certainly a lot of projects are being held up and everybody's projects will be held up if this issue isn't resolved. I think that will create a crunch of supply and certainly that I think will be felt over the next 2, 3 years and will perhaps have an impact on pricing once demand starts picking up. Our own view in this is that predicting the exact timing is difficult, but it is very clear to us that there should be a very strong rebound in the cycle in the next year or 2. And the reason for that is that it is obviously a cyclical industry where we have several years of a slowdown now. You have affordability at the best level it's been in the last 15, 20 years, if you look at the fact that interest rates have reduced by 300 basis points, people's income have been steadily growing, property prices are flat. So our sense is that there will be a strong rebound that would probably first be witnessed through volumes picking up quite sharply and then that will -- in fact, will obviously depend, ultimately, on pricing as well. So our own sense is that the best way to utilize the current period is to use it for business development, get a robust portfolio in place and then hopefully with new projects starting to get launched, we will be in a much better market.
I have one more question, should I ask or I go back in the queue?
No, go ahead.
So Pirojsha, you just mentioned that this 23 million square feet what we have done, of course, this is the highest, but as I know that you are not that happy with that. So you said that you look more at the value rather than the square feet now on, or recently, right? So is it you mean to say that you are now more looking at the deals within -- in central area or more lucrative areas. So I just want to understand that.
I think we'd like to have projects across the pricing spectrum and across different micro markets in the cities. But yes, certainly I don't think it is reasonable to compare 20 million square feet on the outskirts of cities to, say, 20 million square feet in a more central location. So I think we are certainly cognizant of the total area, where I think we want to enter multiple different micro markets that not just be concentrated in very central locations. But at the same time, I think the central locations are the most preferable ones and are the area where we would most like to add new projects. I think there's quite a lot of discussions underway for some very attractive land parcels. So hopefully we can close many of those.
Okay. And all the best and what we have done in last many years, especially in this year, in terms of residential sales and new deals. So you have taken our expectation to a new level. And I am sure you will do it.
We have the next question from the line of Abhishek Anand from JM Financial.
So my first question is on the commercial assets on book, especially Godrej 2 and the hotel. Have we made any decisions on whether it's for sale or are we going to have it as an annuity project on our books?
No, nothing is finalized yet, but I think for Godrej 2, we are leaning towards doing some kind of an equity partnership, but retaining the asset only.
Especially in light of yesterday's budget, because the change in classification will now be taxed, so that's where I was coming from, whether we have made any decisions on whether to hold on to the asset or it will be primarily for sale?
That's right. I think we'll have to decide upfront on that and we are just obviously still fully understanding the budget implications and how exactly to go about it. But yes, I do think that will be an asset that will be -- we'll lease or hold. Of course, we may not retain 100% equity in the assets, yes.
Okay. Secondly, I wanted to understand, on the Development Manager model. So I understand that you have a say during construction, but post delivery, how -- what is the role of Godrej, or how does Godrej ensures that a particular project is maintained as per our standards? Just wanted to understand from the contract -- on the contract basis, how do we ensure that our brand name is maintained post delivery?
You know, the operating structure for these projects is, really no different than any other partnership project. We retain full rights to appoint contractors. Contractors can only be from our selected list of companies. And all of this is captured in the documentation. On the facility management part, typically as a company, we haven't been doing our own facility management. So including the joint venture projects, what we do is appoint, typically, one of these IPCs to manage the property and then we hand over to the society living in the development, which is similar under the DM model. I think we are currently exploring and likely to create more of an in-house facility management presence, particularly for some of our signature projects, but that's something we are still evaluating and working on.
Okay. And finally, especially in Bangalore, if I'm observing that a few micro markets you have a heavy presence, like Devanahalli and Sarjapur. Just wanted to understand the strategy of the company, how it's going to differentiate between the projects so that they don't cannibalize among each other. So I understand this is a plotted development, but overall, when you go ahead with a portfolio addition, what all things you take into consideration and try to differentiate it at the projects among themselves so that in future they don't cannibalize with each other.
So Abhishek, Mohit here. So on your specific question, even if I generalize this question to across cities, so we have very strict guidelines when a new project is added. We look at the inventory available in that micro market. And when we look at inventory, we look at inventory which is available for sale. If it's already under construction, then we -- that's a second stage project. So we evaluate that, we look at how much capital has been deployed, et cetera. So there are various parameters which are looked at. And in case we are ever adding a project within the same micro market, then there has to be a very clear differentiation, either through product mix or through your typologies or positioning, which is very clearly defined before the project is signed. Specifically on Bangalore, Devanahalli, Electronic City, Sarjapur, if you look at the HDIL project, which is again closer to Sarjapur, so these are very critical pockets, which we would like to invest in. Whitefield is another area. And this is something which we feel is a very large market. And we are still quite small there. There are larger players there who are doing bigger projects, so I think we see a big potential to grow in Bangalore.
Okay. And you will be present in these geographies or you will be exploring some other micro markets in Bangalore?
So as I said, if you look at -- if we see a very large concentration in one micro market, then we look at the other one. For us, the entire city is an option which we look at. So if you look at Bangalore East, we don't have too much presence there, so we'll be evaluating options there. And again, these are opportunities versus what we want to do, and it's a dynamic play of strategy.
Sure. And just a small query. This plotted development will be a very quick turnaround, right? So it should be ideally a year, 1.5 years kind of a project I think...
Yes, so the moment we get approval, then it should be a very fast turnaround.
The next question is from the line of Kunal Lakhan from Axis Capital.
Just wanted to understand on our Noida strategy -- Noida and Greater Noida strategy. We've sold almost close to 3 million square feet in the last 5, 6 quarters in our Greater Noida and Noida launches. Firstly, what are we doing right versus, say, the incumbent developers over there? And second part to that is, are we -- what kind of -- what is the profile of the customers there? I mean, are we going to -- are we -- say, a few years down the line, are we going to be in a situation where there's lot of these units delivered and not occupied, and then -- we have to then compete with some of these -- some of the customers who might have been investors or would be looking to offload this inventory in future? I'm just trying to understand, would we see a situation similar to, say, in Ahmedabad in the next 2 to 3 years here?
Kunal, this is Mohit here. I'll answer your second question first. Right now, if you look at any geography, including Noida, or Gurgaon even, it's largely an end-user play, so almost more than 75% to 80% of customers are end users. And the customers really spend a lot of time before they take buying decisions. So actually Noida is a very end-user market in principle. So we don't see any concern of that inventory coming back and competing with us in the future. We feel that these are people who want to buy and invest in us. We've also spoken to a lot of customers who are also saying that, look, we would want to stay in these kind of quality developments. In terms of what we are doing right, I think we are -- when we entered Greater Noida, we were very clear about the risks which we were taking, so right from how we structured the project in terms of financially securing the deal, to the way we did the product design. So we undertook a very massive consumer study to understand what is exactly would consumer want, what are their pain points. So we do this study for almost all projects, and we understood what is the kind of thing which we have to solve for. Business side, we had one of the best designers on board, who did a fabulous master planning. The way we did project strategy, we split the project into multiple strategies. So we did a lot of things which helped us. If you look at Sector 150, that was a very interesting place, because practically any and every developer of good stature is there in competing and Tata had already launched a project there. So that was a very tough market to come and deliver. But again, I think the success was because of the fundamental where we did our -- we figured out what is the consumer requirement, how do we deliver a product around it. And one of the critical things which we observed in that geography, in that location, was security. So the entire project positioning was built on security and that's why it was Godrej Nest. But that really worked with the consumers and given the quality of development, it was a big success.
Sure. Great. My second question was on the new launches front. If I look at your tracker, we have planned launches -- greenfield launches of about -- or 5 greenfield launches and about 3 new phases in the existing projects, and they seem to be on track. So are we looking at like a crazy Q4 in terms of new launches?
I think, frankly, some of these still have approval -- or hopeful of getting the approvals needed, so I'm hopeful of getting some of them. But I do think that -- I doubt all of those will end up currently coming through. But we do want to have at least a couple of launches with high visibility. We're hopeful of doing a lot more. I think only a couple have been taken out of the tracker. For now, we're still hopeful of getting approvals and launching. But I do expect a few will end up getting pushed out through Q1.
Right. And lastly, just on the debt front. Firstly, I wanted to understand how much of cash from the BKC sale have we received in this quarter?
20% of...
20% of the sale value.
Okay. So balance cash will be received in the next -- in the subsequent quarter?
Yes. In next 1 or 2 quarters.
Okay. So we should see some kind of a debt reduction happening in this quarter?
Yes. It also, of course, depends on what is the BD opportunities which we are investing into. But definitely, other than that, there will be a debt reduction on the money [ we pay as well ].
[Operator Instructions] Next question is from the line of Manish Jain from SageOne Investment Advisors.
I just had a balance sheet question, Rajendra, that in non-current assets, our investments have risen from INR 312 crore to INR 422 crores, and in current assets investments have risen from INR 366 crores to INR 556 crores. So overall there's a INR 300 crore rise. Just wanted to know what does that pertain to?
So, investments is on account of investment into my JV projects, so whatever money I'm investing into JV projects, that is on account of that. And current assets, you're saying --- what was your second question, sorry?
One is non-current assets have gone up by -- non-current assets investment section is gone up by INR 110 crores and in current assets, investments have gone up by INR 190 crores.
So yes, for current assets basically for our own projects, wherever we are investing and obviously there is a -- because of the RERA, the total money is passed into mutual funds. So that gets classified under current assets. So that money is temporarily parked over there. Investments, like I said, it's all because of the investment in the JV projects.
Perfect. And Mohit and Pirojsha, outstanding achievement as far as BKC and sales bookings are concerned and the BD done, especially in the 9 months. So all the best.
The next question is from the line of Abhinav Sinha from CLSA.
Just wanted to check in 4Q, are we expecting Trees Phase III and Noida to come into recognition?
I think we don't obviously have that information fully ready and I think we should see Trees get recognized either this quarter or next quarter. Noida...
Noida, no, I don't think...
Noida, not probably this quarter.
Okay. And secondly, on the fee income portion, can you give us a broad idea of what is the run rate like currently?
Abhinav, I don't have that. I can just get this to you off-line. But like Pirojsha mentioned in the earlier question, so this fee will keep on fluctuating because now DM fees, they have 2 portions. One is certain upfront we get we sign our DM, and then there is a steady income which comes over the life of the project. So this quarter would be a little bit of blip when you sign DM fees which has an upfront component. So it is difficult to put a run rate to it, but definitely, we will try and work out something and come back to you off-line.
Suppose you do like a 10% deal, you get like 1/4 upfront, is that a fair assumption?
So again, it depends on deal to deal, not ever deal has an upfront DM component. Again, it is all how you've negotiated and how the other partner is comfortable.
Okay. And you're also talking about investing the BKC proceeds in some business development in like a quarter or 2. So are we looking at like a big purchase which will have some higher capital intensity than usual?
I think that you're aware that, as we've been working on it, I think we view this time as more a huge opportunity on the business development side, and certainly, we'd like to seize that opportunity. And I think we will be quite happy to put some capital to work, obviously, within the same structures we usually use and with the same philosophy that we really have. But yes, I think we'd be very keen to invest as much as possible, assuming the structures and returns we usually expect.
Okay. And we should hear this out in, what, a couple of quarters now?
The thing is, Abhinav, I'm not making this information sound like there are a lot of things happening. Business development is one of our key deliverables, so there is nothing, I think, different that I am talking about, but yes, we will see continued traction in the next couple of quarters.
Okay. Sir, just last question, BKC, the remaining inventory, you will expect this to be sold out this quarter?
We certainly hope to sell it out sooner. I think what we're happy is that we certainly wanted to target selling it out within this financial year. We feel pretty good about the number we've already achieved. The remaining area to sell now is only about 50,000 square feet. We don't have any full floors, [ but ] there are 2, 3 different pockets that needs to get sold. I don't think it all will happen during the quarter. But again, I think we are very happy with the traction and should see that project fully monetized very soon. As we mentioned earlier, we will certainly see very healthy cash flows from the project over the next 2 quarters from deals already locked in.
[Operator Instructions] We take the next question from the line of Saurabh Kumar from JPMorgan.
Sir, my question is this Page 22, your cash flow slide. So this other project-related outflow of INR 326 crores, is this like your partner's share of cash flows?
Saurabh, the -- okay. This includes whatever related top line sharing we do with the partner, whatever the statutory dues or tax rates, marketing and all other related costs. Other costs, overhead costs, everything gets plugged into this other project-related outflow.
Also the JV partner.
Yes, JV partner -- the JV partner's top line share.
So this INR 900 crores inflow is essentially just another arithmetic of all the money you have received and the INR 326 crores is actually what you have given them?
No, not INR 326 crores. Part of it belongs to the JV partner, rest of all is expenditures towards various heads, which I have mentioned, like taxes, settle dues, marketing, overhead, other, everything gets folded into this bucket.
Yes, correct. Obviously yes. So the project-related cost. And the land and approval-related outflow, the Section C, and advanced to JV partners, I'm guessing it's for new projects, not --
No, it is for -- It is for -- like, when I say land and approval-related, it includes the approval cost, FSI cost, which we have to buy for all the projects, which requires what FSI to be bought. So that bucket is for that. And advances, these are separate, what we gave to the JV partner.
So advance to JV partners is for the new one, land and approvals for the existing partner. So basically, your operating cash flow, we should remove this INR 124 crores, if we're to think like that or...
So operating cash flow, these are like you'd buy a land, so that land, or approval, or an FSI, that is on account of that. And when you give a deposit, so instead of buying a land you are paying a deposit. So that's why we have -- kept it outside the operating cash flow. For us, it becomes like a capital outflow.
Yes, so I understand that. But most of this will be related to the new ones or existing ones in your...
Both, because we pay a milestone-based payment to the JV partner also. So our advances are also linked to certain milestone. So that also will start getting recovered as and when the project starts generating revenues in JV partner. So those get classified as a BD outflow for us. It's a capital outflow for us. Basically, it is like doing a land payment over a period of time.
And Pirojsha, you'd mentioned that this is a metric now that we should track, this operating cash flow. So clearly first 9 months you guys have done awesomely well, but do you think this INR 300-odd crore run rate is sustainable or can be improved?
Yes, I think, obviously, there will be significant quarterly volatility. Particularly, I think from the next few quarters, we'll see good operating cash flow from BKC. But certainly, the idea would be to continue to perform well on this and grow it over time. But I don't think that it will be a completely steady performance. There will be quite a bit of quarter-to-quarter volatility in this, but certainly, over the medium term, I think, the goal would be to continue to increase it.
And just one last question with your permission, or shall I go back to queue?
Sure. Why don't you go ahead quickly?
Okay. So just on this projects that you've added this year, the 22 million square feet-odd, what is the capital that GPL would have put in against all this?
I don't have that number. Saurabh, I can just come back to you on that.
The next question is from the line of Samar Sarda from Kotak Securities.
Congratulations on very good performance on the new launches. Pirojsha, I just have a couple of questions on the new launches and schemes and just one data point need. You are launching a lot of projects in the suburbs. Now from a marketing standpoint, like, suburb like Joka and Mamurdi, Pune, what are the value proposition you intend to put because if I see your realizations for Panvel also, they are pretty high at INR 6,100?
So Samar, this is Mohit here. See, value proposition is defined project by project. So if you are looking at projects like Joka, or if you are looking at Mamurdi, essentially what we look at is we do a very extensive consumer study of that micro market of the potential consumers and then arrive at what kind of differentiation positioning we will do for the project. Accordingly, we design the project and then, of course, marketing is what you see as the end output. But there is a lot of work which happens before that. So if you look at something like Mamurdi, currently we are doing a lot of work to understand how we will position this project and how we want to develop this. So that's how we do it, it's a project by project thing. But both of them are end-user markets.
Okay. And out of the launches which have happened in this quarter -- in this year, barring Godrej 24 in Pune and the forthcoming launches, how many of them are classified under 80-IB here, for you guys?
None.
Okay. And just one bookkeeping question for Rajendra. See if I just total the land advances for the quarter and to JVs, existing and new, is round about INR 152 crores, and advances to related parties and JVs is round about INR 580 crores. So do we assume that this is the working capital requirement required in some of the JVs?
Yes.
Okay. And how much would -- sorry.
Yes, Samar. Go on.
And out of the collection -- when I am saying working capital requirement means these projects like you have to spend a little more than your collections?
So obviously, collections are milestones. It includes several projects across. Somewhere you have launched, somewhere the projects are at different stages of construction. So you have to keep on funding those projects. So it is a title mismatch, which will get rectified over a period of time.
Okay. And what will be our share of collections in the first 9 months?
I don't have that calculation. I can come back to you on that.
We take the next question from the line of Sameer Baisiwala from Morgan Stanley.
Rajendra, a bit surprised, because in terms of revenue recognized, if I see the breakup, it just seems to be in 2 buckets, others, and Mumbai, and none of the other larger ones.
Sorry, I didn't understand your question.
If I see the revenue breakup what you recognize in your P&L, then it's only in 2 buckets, the one is Trees, and the other is others.
For others, these are several small projects, like our existing projects we have across the section. So we just classify it as a -- it may be a big laundry list because we have several projects where...
Sameer, under area, this is also very little revenue getting recognized.
No, no, fair enough. But if I compare with Q1 and Q2, you had many other larger projects over there which have not contributed this quarter. These are projects like Ahmedabad, Kolkata...
They have been bucketed into others.
Exactly.
Say it again.
They have been bucketed into others. They would have contributed, but we have bucketed that into others.
Oh, I see, you've changed the categorization, is it?
Yes.
No, I think I mentioned that a reasonable percentage, we put it in others. So with 2% or 3%, typically, we'll put it in others.
Okay, got it. The second question is, on the affordable housing, any thoughts on your plans?
Yes, I think certainly we feel that there are large number of our existing projects for which at this basis could take benefit of the new affordable housing benefits. Certainly, I think the government has obviously made its intent clear in terms of driving the growth for this part of the sector. So I think while we don't have currently any plans for a separate brand or a separate subsidiary looking at this, certainly, we think there are big opportunities within our current portfolio and are also keeping this in mind [ while developing ] new business development deals.
Okay great. And just one final one. Over next 2 years, as you see, do you think you will have capital needs which is anything out of ordinary?
No, I think not unless the business development is something out of the ordinary. So as of now, we don't feel that we have any additional capital need. But again, the only thing that could change that is if business development base greatly changes.
The next question is from the line of Tanuj Mukhija from Bank of America.
Congrats for, once again, great presales numbers. Just 2 questions from my end. I know Godrej wants to be a top 3 player in 4 key markets. Pirojsha, as per you, which amongst these 4 is the best market and could you rank them in terms of your visibility for volume uptake and maybe price growth?
Tanuj, we've already kind of ranked [ basically above 2 ] of these 4. So clearly, I think, we think these are each a big opportunity. To be perfectly honest, I think it will come down to our own execution in determining which markets we do well in. Clearly, each of the 4 markets has interesting overall opportunities, a large number of micro markets that we haven't yet tapped, and significant opportunities for us to grow our portfolio. I think Bombay being our home market, and being obviously the market with the best pricing, will probably remain the most important market for us, particularly once you factor in the Vikhroli development. So certainly I would put that as #1. But amongst the others 3, it is really -- I think it will boil down to how well we execute and there is no shortage of opportunity in any of them.
Okay, thanks. And given that the response for all of your launches in Vikhroli has been fantastic, what are your plans for monetizing or for that large land parcel in Vikhroli? When would you start next phase of launching new projects on the Vikhroli land parcel?
Certainly, we hope to do it soon. Obviously, there are some of these Bombay approval issues that we need to get know on some of the stuff, particularly, DP plan and things. But the idea will be to have big new launches in Vikhroli in the near future.
Next question is from the line of Prakash Kapadia from Anived Portfolio Management.
I had 2 questions. I think Mohit mentioned about things happening on the ground because of RERA demand. So wanted to get some more color, are we seeing smaller players completely exiting, the kind of number of players which were there. So is that large tale now started sinking on the ground? And secondly, in our JV route to scale, are we ensuring the landowner continues to get approvals, so his interest is aligned and our go-to-market route is faster, some of these thoughts will really be appreciated.
So see, first question, yes, we can see a lot of consolidation on the ground. Across markets, we see a lot of these developers, especially -- even the large developers are all coming and, you know, exiting. They are finishing their existing projects, but on the new projects they want to do a joint venture and we see a lot of such situation. If you look at Noida, the deals which we have signed, they are all actually large developers in Noida who have now come and partnered with us. The Greater Noida partner has partnered again with us. So there is a big shift which we can see, which is happening in this industry. On the second question, the interests are totally aligned and we do give approval responsibilities to our JV partner. And totally aligned, because it's a profit sharing, so both parties obviously work towards making it more profitable and faster.
Okay. And in that context, is it fair to say, as Pirojsha also mentioned, the demand side looks reasonably good from the buyer's perspective, given low-interest rates, affordability, income rising. So when do we see pricing power coming back because the way prices have been -- because today if you think of it, from a customer perspective, the most crucial thing is delivery and maybe the certainty of delivery from a buyer's perspective. So once this tailwind of some of these unorganized players is gone, and some of the larger players not wanting to do, so when does pricing power come to the brand?
So Pirojsha did mention in the call that we expect it to happen in a year or 2. And again, first coming with volume growth and then followed by the pricing growth, so that's what is the view.
Okay. So next 1 or 2 years we think that should happen.
Next question is from Manoj Dua, who is an individual investor.
We are doing good in terms of presale, we are doing good in terms of signing new projects. So I want to ask what are the general challenges or the area we should tread carefully going forward, so like maybe pricing or maybe approval. What are the challenges as of now the Godrej Properties is facing in achieving toward our mission of growth?
Sorry, you were breaking up a little bit, so I'm not sure how we captured it exactly, but I think obviously the real estate sector of India is one that -- has a huge amount of opportunity and upside, but there are no shortages or challenges either. I think this call is definitely too short to rather properly expound on those. But certainly, the pace of regulatory approval continues to be a headache. These new issues that keep cropping up from time-to-time, like we are currently facing with the dumping ground situation in Bombay, with development plans being delayed. Similarly, there are issues in other cities. So I think that continues to be a slight headache. Certainly, there are internal areas of operation where we think there is room for improvement as well. But I think what really excites us is that this is a sector that is absolutely filled with opportunity. We think the next couple of decades are tremendously exciting period, where India is likely to be the fastest growing major economy in the world. Within that, we really do believe that the real estate sector is likely to be the fastest growing major sector. And we are still well positioned to kind of fully capitalize on that opportunity. But needless to say, with that much opportunity there will be a lot of challenges that we need to encounter that we need to make sure that we are on top of. And including, I think, just building an organizational capability to keep pace with the kind of growth we want to achieve.
Okay. In which sector we have tied up the new Noida project?
It is in Sector 150.
150? Same where we have already projected 150 also -- it's also in 150?
Yes. But this is a slightly better location than the previous one.
Thank you very much. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
Thanks very much for joining us on today's call. I hope we've been able to answer all your questions. If there is any other question or comment, please do reach us off-line. And hope you all have a great weekend and thank you.
Thank you.
Thank you very much. On behalf of Godrej Properties Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.